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Despite Secretary of the Commerce Wilbur Ross' denial that this action has anything to do with the bigger trade war between the United States and China, it is hard to see how they are unrelated. The Commerce decision will hurt American companies that provide parts to ZTE and hurt consumers of the company's products who reside in the U.S.

President Trump on Monday indicated he might be having a change of heart, tweeting out: "President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!"

It can't come too soon. The company got hammered when they self-reported the violation and took actions to remedy the situation. Yet this action seems to be a way for the U.S. government to use one Chinese company to send a message to the government of China in a way that is unproductive and harmful.

CNN reported on April 17, 2018 "the U.S. Commerce Department said that ZTE lied to American officials about punishing employees who violated U.S. sanctions against North Korea and Iran. The Chinese company agreed to pay a $1.2 billion fine last year after a U.S. investigation found it had illegally shipped telecommunications equipment to Iran and North Korea.

CNN reported on April 20, 2018 a response from ZTE that the sanctions were "extremely unfair" and the action "not only endangers ZTE, but also hurts ZTE's cooperative partners, including many American companies."

The facts of this case are complicated yet speak to the conclusion that Commerce may have gone too far.

First, the decision was made without sufficient notice to the company and the Department of Commerce never took into consideration mitigating factors in this case. The company self-reported these violations and took actions internally to fix them.

According to reports, the company fired four employees, but they had not disciplined or reduced bonuses for thirty-five other employees like they had promised initially.

The company had confirmed that the bonuses were not reduced, and reprimands were not doled out, therefore they took "immediate remedial action" to address the situation. This information seemed not to be considered when doling out a trade death penalty to the company.

The order seems disproportionate to the allegations. Other companies who are in a similar situation will think twice before reporting violations to the U.S. government for fear of retribution and harsh sanctions.

While some sort of fine or other less draconian penalty may be in order, a complete cessation of trade with the company seems to be of a magnitude that does not reflect the controversy.

The company fired four employees and ended up taking actions on the disputed bonuses – they disciplined themselves. The company took corrective action and told the U.S. government of the violation.

ZTE's Fix

They seem to have acted in good faith to remedy the problem internally. Serious discipline including terminations and demotions to employees were all done in a timely manner after the problem was identified and reported to the Department of Commerce.

Reuters reported on April 25, 2018 "ZTE invested over $50 million in 2017 in improving its compliance program and planned to increase that spending this year, the letter says."

The trade war between the United States and China is hot and the U.S. has threatened up to $150 billion in tariffs on Chinese imports and it is hard to believe that the recent action by Commerce is not part of a comprehensive effort to sanction China.

Reuters reports "China's ZTE Corp held a conference call on Wednesday with major suppliers, during which a company representative suggested the trade dispute with Beijing may have been a factor in last week's U.S. order banning American firms from selling goods to the smartphone maker, according to a person familiar with the call."

The sanctions as imposed by Commerce seem way out of proportion to the allegations and hopefully cooler heads will prevail in a way that remedies the situation and does not punish American companies and consumers for no good reason.

Darling is a former senior communications director and counsel for Sen. Rand Paul, R-Ky., and founder of the firm Liberty Government Affairs.

Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the stocks they discuss. The information and content are subject to change without notice.